Aktieselskabet Schouw & Co. (SCHO) Earnings Call Transcript

Ladies and gentlemen, welcome to the Schouw & Co. conference call. I'm Lorenzo, the Chorus Call operator. I would like to remind you that [Operator Instructions] and the conference is being recorded. [Operator Instructions] At this time, it is my pleasure to hand over to Jens Bjerg Sorensen, CEO. Please go ahead, sir.

Thank you very much for the introduction. And also from my side, very much welcome to our Q3 report call. Alongside myself in the room here is sitting our CFO, Thomas Hansen; and CIO, Kasper Okkels, to help me if any questions coming up. Now we have to flip to Page 2. Overall, we delivered a strong quarter, all-time high and very satisfying. Our revenue increased 16% to DKK 10.6 billion, and EBITDA increased 37% to almost DKK 1.2 billion with a margin of 11.3%. In general, we saw a broad-based improvements across all our portfolio. We saw a very -- it's very positive to see also that our profit before tax increased 69% to DKK 881 million. We also saw a very satisfying development in our financial key figures. Our operating cash flow was up 8% to DKK 966 million. Our net interest-bearing debt was reduced 46% to DKK 2.6 billion, of course, also a huge effect from the proceeds from our IPO of BioMar. Our leverage is now down to 0.8x EBITDA. Our return on invested capital ex-goodwill improved to 15.9% and by that exceeded our old target of 15%. Also, something was going on in our portfolio. Spectre consolidated from September as the seventh portfolio company in our portfolio. I will come back to Spectre a little bit later. In general, we see high activity, and we have a very solid backlog that supports an increase in our full year guidance. Now I'm turning to Slide 3 and going on to BioMar. BioMar experienced a record high volumes and exceptional good earnings. The feed volumes increased 5% to 488,000 tonnes. In fact, they experienced growth across all 3 feed segments. Revenue increased 19% to DKK 5.8 billion. Some of that was also based on very high raw material prices. BioMar's EBITDA increased 44% to DKK 736 million. This was mainly driven by improved margins and BioMar's strong ability to utilize diversified raw material base. BioMar saw very strong earnings in the Salmon and Selected Species segments. The Shrimp segment had very good volume development, but earnings were impacted by higher raw material energy costs, especially in Ecuador and also toll milling. The segment was also hit by a bad debt and ramped-up costs in Costa Rica and in Vietnam of around DKK 20 million. So going into -- looking into the Shrimp segment, we see a stabilized profitability. In general, a very strong and underlying development in BioMar, good development in the JVs and associates' companies. Working capital was reduced despite higher activity and BioMar's return on invested capital ex-goodwill increased to 34.3%, which we think is rather impressive. BioMar raised their guidance based on strong year-to-date development. Revenue now expected to be DKK 7.8 billion (sic) [ DKK 17.8 billion ] to DKK 18.6 billion, and EBITDA increased to be in the range of DKK 1.72 billion to DKK 1.79 billion. I'm now turning on to GPV, Page 4. GPV had a very strong order momentum that drives earnings growth. Revenue increased 9% to DKK 2.3 billion. GPV continued the high level of order intake. In fact, they are seeing a book-to-bill now of 1.92, which is very satisfying and impressive. EBITDA increased 26% to DKK 217 million. GPV's EBITDA margin increased from 8% to 9.3%, tracking well towards the target of 10%. GPV had continued productivity improvements across the company and also experienced benefits from a lot of structural efficiency initiatives and footprint decisions made. GPV is preparing for further growth. They are expanding their capacity in both Thailand and Mexico. The commercial pipeline remains very strong, and we now see orders coming from the very interesting data center segment. However, GPV is also experienced constraints from supply of components -- of selected components but have a very good structure to manage that. GPV's guidance is raised. Revenue now expected to be DKK 8.8 billion to DKK 9.2 billion, and EBITDA increased to DKK 740 million to DKK 770 million. Turning to Page 5. HydraSpecma continued growth and very strong commercial momentum. The revenue increased 12% to DKK 838 million. And also here, we saw growth across the 3 divisions. Renewables and global OEM continue really to perform very strong. EBITDA increased 11% to DKK 108 million. Here, HydraSpecma had a benefit from very solid supply chain optimization, also from the continued production footprint improvements and return on invested capital ex-goodwill increase to 19.5% for HydraSpecma. The company is investing for further growth. We just took our new 22,000 square meter China facility in operation, and it's now fully operational. HydraSpecma expanding their capabilities within cooling and fluid conveyance for the data center segment. Also HydraSpecma, they are having a very strong order intake and a solid order book, meaning also guidance revenue expectations maintained DKK 3.4 billion to DKK 3.6 billion, but EBITDA expectations increased to DKK 444 million (sic) [ DKK 445 million ]to DKK 465 million. Then turning to Page #6 on Borg Automotive. Borg Automotive's profitability is improving despite very difficult markets, revenue flat at DKK 418 million. And also a part of that is a deliberate phaseout of unprofitable revenue, really scrutinizing the company for that. EBITDA increased to DKK 27 million, especially we saw improved profitability in the Newman segment. The transformation plan Refine4Future is now really delivering the productivity improvement and cost optimization as expected. Working capital reduced 30% and thereby also net interest-bearing debt reduced, which is very positive. Borg Automotive's commercial transformation strategy continues and shows good results. We now see One Borg go-to-market concept was launched, meaning that the Reman and Newman concepts now are combined. We also experienced good news in the market. We had what we call a remanufactured eDrive Motor that won the prestigious Innovation Award at the Automechanika Fair in Frankfurt. Of course, guidance is narrowed. Revenue a little bit down towards the lower end, also effect of phaseout of unprofitable revenue. EBITDA now DKK 95 million to DKK 110 million. Then turning to Page #7. Fibertex Personal Care is being resilient earnings in very volatile markets. Revenue increased 21% to DKK 507 million, was mainly driven by higher raw material prices. EBITDA, however, maintained at DKK 53 million. In fact, earnings were stronger than expected despite this very high raw material volatility. We saw a strong performance in our Danish operation and also the printing business really continued to perform very well. Fibertex Personal Care improved their ability to manage the volatility. They revised their pricing mechanisms and also were able to utilize a diverse raw material sourcing platform. They continued to have a strong focus on operational efficiency and also driving innovation, which is very important in this company. The market picture for Fibertex Personal Care remains mixed. The European demand expected to remain stable, whereas Asian as also earlier, overcapacity and pricing pressure continues in that area. Guidance means that revenue expectations are maintained, but EBITDA raised to DKK 170 million to DKK 190 million. Turning on to Page #8. Here, we are on Fibertex Nonwovens. Fibertex Nonwovens really saw strong growth and earnings and the improvement continues in that company. Sales volumes increased 5%. Revenue increased 22% to DKK 678 million, a mix of raw material prices and product mix, growth across several important segments and markets. Fibertex Nonwovens' EBITDA increased 69% to DKK 88 million. Higher activity and operational improvements are key drivers, but also very solid profitability improvement in the very important U.S. market. FIN is a very broad-based commercial development. We have a strong product and project pipeline, growth in the wipes and hygiene segments, mainly in U.S. and the European market. Also, as I said, a very attractive pipeline, especially in the, what we call high-value segments. FIN Nonwovens' raised their guidance. Revenue and EBITDA increased. Revenue now expected to be DKK 2.6 billion to DKK 2.7 billion and EBITDA now expected to be DKK 280 million to DKK 300 million for that company. Then turning on to Page 9 and the last company in our portfolio, not the least, but the newest company in our portfolio, Spectre is now part of Schouw & Company. We only show 1 month of activity with Spectre. It's a consolidated into Schouw & Co from September, revenue was DKK 57 million. Turnover in Spectre has seasonal peaks, September, usually rather low. EBITDA affected from acquisition accounting. EBITDA for the month, negative DKK 10 million, but the underlying EBITDA on the turnover is positive. In fact, Spectre had DKK 14 million negative impact from a nonrecurring and noncash PPA issues or items. Spectre has a very strong platform for further growth. The order book is now 21% above last year. Spectre just opened their fourth factory in Vietnam during Q3. It's most automated facility in the company and big expectations for that. They also implemented a group-wide ERP system. Outlook for 2026 is based on only 4 months of activity. Revenue is DKK 300 million to DKK 400 million and EBITDA after acquisition-related costs is expected to be around 0. The longer-term outlook for Spectre is, as also mentioned before, promising, expecting organic growth and 2030 ambition of DKK 1.7 billion to DKK 2.0 billion revenue, EBITDA in the range of 15% to 17%. Then turning on to Page #10, just a wrap-up on our full year guidance. Full year guidance increased based on very strong performance throughout the first 9 months, broad-based earnings across the entire portfolio and also high order intake and solid order books in several businesses really gives a good comfort for the guidance, meaning that turnover now expected to be DKK 36.2 billion to DKK 38.1 billion and EBITDA now DKK 3.37 billion to DKK 3.52 billion. And also, we expect that to be able to deliver profit before tax above the DKK 2 billion mark. So with that guidance update, I will open up for questions.

The first question comes from the line of Claus Almer from Nordea.

First of all, Jens, congratulations with another very, very strong results in Q3. I have a few questions. I will do them one by one. And the first one is more a broad top-down question. We had a very broad-based guidance upgrades after Q2 and now again, a number of upgrades in Q3. Is this upgrade more a reflection of being conservative on -- from your side? Or are you mostly surprised by a very strong demand dynamics? That will be the first one.

Yes. Thank you for that, Claus, and also thank you for what you're saying. No, in general, as we -- as I say, we always guide what we see and believe in. And I have to say that not very surprised, but we are surprised that things are running very well. We really see now the effect of all our efficiency improvements, strong position in the market. And then also, we are getting a grip on attractive new segments as data segments, defense, et cetera. So positive for all of us that we have such a strong quarter. But it really shows that the platform we are standing on is maybe even stronger than we thought.

Okay. And then the second question goes to GPV. Can you give an update on your ability to source the various components and not least the lead time on these?

Yes. And that's a very interesting question because, of course, that is without saying it's a problem, but it's always a concern, and we see these longer lead times, and we have set up a special task force to handle this and also decided that we are going to build up more inventory to also meaning that net working capital and things will be higher, but we need to be able to supply. And we have many years of experience in that and so far, doing quite well, but we have really put a lot of resources and efforts into that area because it's so important for us.

But in the report, you write that there's a continued limited visibility and yet you're on a book-to-bill just going up, up, up. So does that mean you get the orders, but you're not 100% sure when you can deliver on those? And if that's the case, could we face some penalties if you are delayed?

Now also a very relevant question, Claus. And you could also say maybe somebody are really over ordering because they are afraid of not getting supply and so on. But so far, we believe in a very, very strong order book, and we have not had any supply constraints or delivery constraints so far. And normally, we have a good balance with our customers and so on. We have also, as you remember, years back, we had this purchase price variance system setting up that we source in these complicated components and then not whatever price, but at the price and then we give it -- pass it on to our customers. So, so far, no problems knocking wood, and we are in a good position. But of course, we need to be concerned.

Okay. And then, Jens, I will not disappoint you. So I would just say well done on the net working capital performance in the quarter.

The next question comes from the line of Ulrik Bak from Danske Bank.

I'll take them one by one as well. So following up on GPV. Obviously, you talked about strong demand, strong order intake, but then also these concerns about component scarcity. And then in the quarter, we saw a quite nice margin uplift. But as you perhaps see these challenges of component scarcity intensify, could we potentially see a hit to the EBITDA margin going forward? Or how do you mitigate that?

That's not what we expect, and we have rather strong pass-on mechanisms and so on. But we do not expect that at all. And our margin uplift is really something coming from a lot of different factors, but mainly also internal productivity, our footprint closing down factories moving around. So it's a very solid margin uplift we are seeing. And as I also said, we expect to be able to reach the target of the 10%. So I feel very comfortable on the way the margin has been increased -- delivered. Of course, we need to and have to have our eyes very, very much on price increases and so on, on components. But so far, that's not a concern.

That's good to hear. Then a question on Borg Automotive. In Q3, you had slightly declining growth. Q4 implied guidance also suggests muted growth, flat at the midpoint, thereabouts. Are you adapting for a further reduction of the top line beyond Q4? Or do you have initiatives in place to drive sales? And how does that match with the efficiency program that you also have in taking cost out?

Yes. No, we are not preparing for further reductions on top line. In fact, we are sharpening our go-to-market strategy and really expect also to take share. We see a lot of turmoil in the market, and we are, as one of the bigger ones standing rather strong. And the new strategy, One Borg go-to-market, we have a total new sales organization in place. And so we expect really to continue to push. And we see also in a very difficult market that we are taking a market position and market share. So we are preparing for continuing to grow and also expect without disclosing too much into 2027. But I think when we came up with our Refine4Future plan, we also said that we expect a huge uplift on that. So we expect also to drive profit uplift in '27.

Understood. The next question on Fibertex Nonwovens. You had a nice uplift in year-over-year earnings. And I suspect some of it is driven by raw material effects and perhaps also FX. But could you perhaps strip out those effects and yes, elaborate on the underlying earnings growth, volume growth, et cetera?

Yes. It's clear is that, as you also know, following us for a long time that we were -- we have had a lot of issues in the U.S. with new facilities, et cetera. That is really delivering profit now. So we see a huge profit uplift in U.S. We see a much better product mix where we -- to run in new lines and new capacity and so on, we have a lot of what we call filler volume and this filler volume is with a low margin and so on, we are getting out of that. So product mix is much better. Efficiency in U.S. improved a lot. And then in general, we've also experienced a volume uplift that also delivers on the margin. So that's an impact of a lot of things, internally things that we have worked hard on.

Understood. And then my final question on the buyback. As far as I can see, you have already spent the amount planned under the current buyback, even though it lasts until the end of the year. But you do not announce another buyback or an increase to the current one. Could you just elaborate on the rationale for this because it may raise speculation for further M&A opportunities or whatnot. So it would be great with some color.

Yes. Thank you. I think let Kasper Okkels try to elaborate on that.

You're right, Ulrik. When you look at how much of the current program, which has already been executed, then the amount allocated for share buyback is more or less executed. We have not yet decided if there will be any more allocation for share buybacks. But as we told on the Capital Markets Day, share buyback is a priority for us, and we believe in the current environment, it is also good to buy back shares.

[Operator Instructions] The next question comes from the line of Emil Haargaard from DNB Carnegie.